How to avoid a Christmas debt hangover
By Russell Cavanagh - 11/11/2008
Christmas lights are already up in some towns and now is traditionally the time to plan festive spending on events, presents and entertainment. It is a difficult season financially, especially for families. So how can you minimise or avoid debt at this time of the year?
Draw up a budget now
Assess what your income will be over the coming period. Work out how much you need in order to cover essential expenses – especially priorities like council tax, housekeeping, rent or mortgage, water and fuel.
Get a sheet of paper and put your income details in one column and the expenditure in another. Remember also to put your regular credit repayments with your expenses. Any amount you have left is what you can realistically afford to spend without getting into financial difficulty.
Do you really have to buy expensive presents? Maybe a small thoughtful gift would be appreciated rather than the latest gizmo seen on TV and soon discarded. Budget according to how much you have spare and decide how many people you need to cater for.
Credit temptation
Remember that many household bills arrive all at once in January. If you really have to take out credit to buy presents, etc, make sure you shop around for the cheapest deals and avoid more expensive items (e.g., store cards carrying high charges and interest). Also resist promises of ‘easy credit’ as there may be less obvious costs written into the contractual details that you skip in your enthusiasm to borrow. Check exactly what the total cost of taking out any item of credit will be before signing anything.
Some credit cards offer repayment periods that do not carry interest specifically on purchases for several months and there are loans that can be paid off over time. Websites like www.choosemoney.co.uk, www.moneysupermarket.com or www.credit-card-comparison-online.co.uk carry good advice articles on credit products as well as comprehensive ‘at a glance’ comparison tables that are easy to follow.
However, if you are already struggling to pay for your regular household expenses, acquiring more debt is best avoided. If your money problem is short-term, moving existing credit balances onto a ‘balance transfer’ credit card with a long 0% APR period may be a consideration. (The APR figure includes some charges and the applied interest.) Be careful not to use the card for anything else (as interest will apply on most transactions) and make sure you repay regularly within the stated interest-free term to avoid penalty charges and default interest.
Work from your budget sheet. Make sure you can pay off you priorities first if you want to avoid bailiffs, losing your home or fuel supplies being disconnected.
Other forms of credit
If you plan to go into overdraft on a current account, make sure this is agreed with the bank. Check what charges may apply and look for a deal that does not penalise you if you stay within your allocated limit.
Doorstep credit is very easy to obtain. But be aware that the interest rate is usually very high and so you would owe a lot more than you actually borrow. If you do use this form of credit, make sure the lender is licensed by the Office of Fair Trading - if not, you will be dealing with an illegal, expensive and possibly violent loan shark!
Mail order catalogues are also easy to get goods on credit. The downside is that items tend to be notably dearer than in the shops. Watch out for ‘Xmas Hamper’ offers as they are often unjustifiably expensive.
Many stores promote special purchase offers linked to store cards. Store cards seem like credit cards at first but the interest charged is often much higher and you are very limited as to where you can use the card.
‘Buy now pay later’ deals will also increase during the run up to the festive season. If you consider such a deal, make sure you will be able to afford repayments when they are eventually due to start and ask what penalty charges or interest will apply in the event of missed payments.
Contact your Citizens Advice Bureau or local authority to see if there are any credit unions they can point you to. Credit unions should charge very low interest on loans but you have to join the union first and there may be a waiting period before you can borrow.
In an ideal world ...
Ideally, we would all be saving up during the year and putting money aside regularly into cash ISAs, savings accounts or the aforementioned credit union.
If you really cannot afford Christmas, be honest with yourself. Also explain to your loved ones that you can’t afford expensive presents this year. It is amazing how particularly understanding children can be and they sometimes even take satisfaction out of your straightforward honesty and that you consider them mature enough to understand. To do otherwise is to invite financial disaster later that may be harder to admit or explain.
Christmas should perhaps be more a celebration of family and friends than a spending frenzy. You may find that friends and family are in a similar boat – there is currently a credit crunch after all! - and will be happy to exchange meaningful token gifts instead of unaffordable gadgets. If you are alone at Christmas, check out if there are any lunch clubs or similar events – and take some consolation in the fact that your spending need not be too high.
Finally
Don’t worry and suffer alone. You may wish to contact either of the following agencies for advice and help:
• Community Legal Advice provides telephone advice and casework. Call 0845 345 4 345
• Look under ‘Citizens Advice Bureau’-- in the phone directory for your nearest CAB office or go to www.citizensadvice.org.uk
• The Consumer Credit Counselling Service - 0800 138 1111 - deals with low priority debts.
And remember...
Avoid debt if possible. And if you can’t, at least avoid paying for debt advice if you can!